Q. I am looking to establish a Self Managed Superannuation fund (SMSF). My accountant is recommending I establish a Corporate Trustee? Why can’t my wife and I be Trustees in our own right and avoid the extra complexity?
A. Under the SIS Act, a SMSF must choose to have either a Corporate or individual Trustee. Each member of the SMSF must also be a trustee or a director of the Corporate Trustee.
According to the ATO, less than 10% of newly established SMSFs are set up with Corporate Trustees. However there are pros and cons to be considered in deciding whether to an establish individual or Corporate Trustee structure.
All assets of an SMSF fund must be held in the name of the trustees. If you have individual trustees, then all names must be on the ownership title of the assets “As trustee for” the SMSF. If there is a change in membership of the fund for example on divorce, death or the addition of new members, under an individual trustees structure, the ownership of the assets would need to reflect the change. Changing the title of all the assets can be a complicated, frustrating and expensive exercise. Under a Corporate trustee, only ASIC would need to be notified of a change of directors.
Use of a Corporate Trustee makes it easier to identify which assets are owned by an SMSF and those owned by an individual. Hopefully avoiding expensive breaches if the wrong cheque book was used to pay a bill.
Single member Super funds still require 2 trustees if structured without a Corporate Trustee. The non-member Trustee will have a say or involvement in the running of the fund. A single member fund can have a single director Corporate Trustee.
A company has an indefinite life span and can exist and continue to act as a Trustee beyond the death of a fund member. This is an issue for 1 or 2 member funds as the death of a member would require a new trustee be appointed expeditiously. This is typically not the time that a surviving Trustee would want to be making quick decisions.
A Corporate Trustee is subject to limited liability. There is greater protection of personal assets in the event of being sued.
If you wish to borrow funds to purchase property within the fund, most lending institutions require a Corporate Trustee.
A Corporate Trustee is an ASIC special purpose company and is more expensive to establish than as an individual trustee.
If your decision is governed by establishment costs, it is cheaper to appoint individual trustees. However in the long term a Corporate trustee structure may offer you advantages both financial and practical.